The dollar clung to minor gains on Wednesday, edging up from near a fivemonth trough versus major peers, as a pick up in U.S. manufacturing kept bets alive for a quicker normalisation of Federal Reserve policy.
The dollar index, which measures the greenback against six rivals, hovered just below 90 after dipping to as low as 89.662 on Tuesday and approaching the lowest since Jan. 7 at 89.533.
The euro traded at 1.22 after pulling back from near a multimonth top overnight, when it climbed to 1.22545.
Investors were also eyeing the trajectory of Chinas recently bullish yuan. It was little changed at 6.3823 per dollar in offshore trading, after retreating from a threeyear high of 6.3526 on Monday as policymakers took steps to cool its advance including raising banks FX reserve requirements.
Sterling remained lower at 1.4135 after easing off a threeyear high of 1.4250 reached on Tuesday, while the Canadian dollar traded at C1.20675 per greenback after rallying to a fresh sixyear peak of C1.2007 overnight as oil prices rose.
The FX market seems caught between two conflicting drivers. On the one hand, we have huge amounts of dollar liquidity in the global money markets courtesy of the Feds QE and the US Treasurys unwinding of the cash holdings under its general account TGA, said Valentin Marinov, head of G10 FX research at Credit Agricole.
We think that the times of generous dollar liquidity supply maybe soon drawing to an end, however, and we believe that the dollar…